Oversea-Chinese Banking Corporation Limited (O39) Earnings Call Transcript & Summary

All right. Good morning, everyone. Welcome to OCBC's Second Quarter First Half 2026 Results Briefing. On our panel this morning, we have our Group CEO, Mr. Tan Teck Long; and our Group CFO, Ms. Goh Chin Yee. To their left and right, I shall start from Jason, Jason Moo, our CEO of Bank of Singapore; Mr. Sunny Quek, the Head of Global Consumer Financial Services. And then right to the other end, we have Mr. Greg Hingston joining us from Great Eastern, the CEO of Great Eastern. And last but not least, we have Mr. Kenneth Lai, our Head of Global Markets. Chin Yee will start with the presentation, and thereafter, we will have Teck Long sharing with us some of his thoughts before we take Q&A. Chin Yee, please.

Good morning to all. Welcome, and thank you for joining OCBC's First Half 2026 Results Briefing. OCBC delivered a record group net profit of SGD 2.2 billion for the second quarter of 2026, up 22% year-on-year. This is the first time that our quarterly profit crossed SGD 2 billion. ROE was 14.4% on an annualized basis. Total income grew 18% year-on-year to a new high of SGD 4.17 billion. Net interest income was 1% lower year-on-year amid lower interest rate environment, but this was largely cushioned by our strong growth in average assets. Robust growth in noninterest income more than compensated for the lower NII. Noninterest income grew 51% year-on-year, driven by broad-based growth across fees, trading and investment income and insurance income, up 28% for fees, trading and investment income up 85% and insurance income up 68%. In particular, strong momentum in wealth management drove the increase in fees, while customer flow treasury income was contributed by both wealth and corporate segments. Noncustomer flow income was also higher for the quarter, largely from SGD 191 million of investment income from Great Eastern, led by strong equity markets. We continue to maintain cost discipline with cost-to-income ratio lower at 37.8%. Loans and deposits grew strongly, up 11% and 13% year-on-year, respectively. Asset quality remains sound. NPL ratio was stable at 0.9%. Credit cost at annualized 14 basis points. We maintained healthy liquidity, funding and capital positions. Common equity Tier 1 ratio at 14% on fully phased-in basis or 15.7% on a transitional basis. For the first half, group net profit rose 13% year-on-year to a record SGD 4.19 billion. Total income grew 11% to SGD 8 billion, underpinned by record noninterest income, which more than compensated for the decline in net interest income. Annualized ROE increased 1.1 percentage points to 13.7%. Moving on to our performance by key business pillars in Slide 5. We delivered broad-based growth across our banking, wealth management and insurance franchise in the first half of 2026, as can be seen from the positive variances in all 3 charts on this slide. Higher fees, trading and investment income drove stronger banking net profit, which grew 8% year-on-year. Wealth management income reached a new high of SGD 3.29 billion, up 27% year-on-year and now comprising 41% of the group's total income. All wealth segments and channels delivered growth. Net new money inflows were SGD 6 billion for the second quarter, bringing the first half inflows to SGD 11 billion. Banking AUM grew 13% year-on-year and 2% Q-on-Q to SGD 350 billion. Profit contribution from GE rose 44% to SGD 794 million, underpinned by strong insurance and investment performance. Total weighted new sales and new business embedded value grew 15% and 28% year-on-year, respectively, led by strong sales from Singapore across agency as well as banca channels. NBEV margin improved to 49.8% from 44.7% a year ago as GE continued to progress well in shifting to higher-margin products. Moving on to our group performance trends. I will start with net interest income on Slide 8. Second Q '26 NII was SGD 2.26 billion, down 1% year-on-year and up 2% Q-on-Q despite a lower SORA environment. As shown in the chart on the bottom left, the Q-on-Q increase in net interest income was driven by asset growth across both commercial and noncommercial books, which more than compensated for lower loan yields and higher wholesale funding costs. Average assets grew 5% Q-on-Q, driven by loan growth and a 5% or SGD 10 billion increase in average balances of high-quality treasury assets. Moving to the chart on the bottom right. 2Q NIM declined 6 basis points Q-on-Q to 1.70%, reflecting compression in loan yields and higher wholesale funding costs. During the quarter, we increased wholesale funding to support our strong 5% Q-on-Q loan growth and our continued investments in high-quality treasury assets, which are NII accretive. These assets remain an important lever in helping us to sustain net interest income in a declining interest rate environment. Excluding the growth of noncommercial book, the overall decline in NIM would have been 3 basis points Q-on-Q instead of 6 basis points Q-on-Q. Looking ahead, we expect NCA for treasury markets asset growth in second half to be significantly lower compared to first half as we continue to balance our NCA growth against commercial lending opportunities and capital deployment. We expect NIM to stabilize in second half on expectations of gradual strengthening of SORA towards year-end. NII sensitivity based on 1 basis point increase in rates across the whole book was around SGD 6 million on an annualized basis. Moving on to noninterest income. Our noninterest income reached new highs for both the second quarter and the first half. For the first half, noninterest income rose 36% year-on-year to SGD 3.51 billion, lifted by strong double-digit growth across fees, trading and investment and insurance income. Noninterest income now accounts for 44% of our total income. For the second quarter, noninterest income rose 51% year-on-year and 19% Q-on-Q, driven by higher wealth management fees, trading and investment income. I will cover more details of our fees, trading and investment income in the next 2 slides. Our second Q fees crossed SGD 700 million for the first time, lifting our first half fee income to a record SGD 1.41 billion. Growth was broad-based, led by wealth management alongside loans and trade-related, as well as investment banking fees. In the first half, Wealth Management fees grew 39% year-on-year, supported by a larger AUM base and increased customer activity. Wealth management fees accounted for more than 60% of our total fee income. Invested AUM improved Q-on-Q to 62%. Growth was broad-based across all wealth product channels, including bancassurance, private banking, treasury products, unit trust, structured deposits as well as brokerage. Our first half trading and investment income rose 46% year-on-year to SGD 1.13 billion, driven by record customer flow income. First half customer flow income increased 47% year-on-year, supported by both wealth-related activity and corporate hedging, including continued demand for precious metals, foreign exchange and structured products. Second Q customer flow income was up 60% year-on-year across all wealth and corporate segments. Noncustomer flow income also increased significantly, mainly from GE's investment income following the recovery in equity markets post our first Q '26 results. Moving on to operating expenses. We continue to maintain cost discipline while investing strategically to support business growth and our Next Frontier strategy. First half operating expenses were SGD 3.08 billion, up 10% year-on-year, mainly due to higher performance-related remuneration and incentives and continued investment in technology to support business growth. First half cost-to-income ratio improved year-on-year to 38.5%. Second Q cost-income ratio also improved year-on-year and Q-on-Q to 37.8%. Customer loans grew 5% Q-on-Q or SGD 17 billion to SGD 364 billion. Our year-on-year loans were up 11% or SGD 29 billion on a constant currency basis. Loan growth was broad-based across corporate and consumer loans. Year-on-year, our corporate loan growth was led by the TMT and digital infrastructure, energy, power and utilities and transport sectors. By geography, growth was driven by Singapore and Malaysia as well as our international markets, including the U.K., U.S. and Australia. We continue to see strong momentum in the areas of our strategic focus, including Singapore residential mortgages, wealth financing, TMT and digital infrastructure as well as sustainable financing. Our sustainable financing loans rose 12% year-on-year to SGD 60 billion, accounting for 16% of total group loans. Moving on to portfolio quality. Overall, our loan portfolio quality remains sound. NPL ratio was 0.9%, unchanged since June 2024. Second Q NPAs were SGD 3.13 billion, relatively unchanged Q-on-Q. During the quarter, new corporate NPA formation mainly arose from the downgrade of two Greater China corporate real estate accounts that were previously under special mention and were proactively managed. New NPA formation was partly compensated by net recoveries, which were mostly from Greater China CRE upgrades as well as write-offs. Total allowances for the first half increased 14% to SGD 372 million. Total credit costs were unchanged year-on-year at 18 basis points on an annualized basis. For the second quarter, total allowances were SGD 156 million, down 28% Q-on-Q and up 36% year-on-year. Total credit costs were at 14 basis points on an annualized basis. Now, our second Q allowances for impaired assets were largely from the two accounts I mentioned earlier. Non-impaired allowances included ECL from changes in credit risk weights as well as management overlays for macroeconomic uncertainties in Indonesia. These are partly offset by transfers to allowances for impaired assets relating to the two accounts I mentioned earlier. Our total NPA coverage ratio was unchanged Q-on-Q at 163% and was 7 percentage points higher compared to a year ago. Performing loans coverage ratio was lower Q-on-Q at 0.8%, mainly due to our enlarged loan base. Our coverage levels position us well to navigate uncertainties. Moving on to deposits. Customer deposits grew 13% year-on-year to SGD 459 billion, driven by 12% growth in CASA deposits from both wholesale and consumer segments. Against last quarter, deposits were up 3% and group loans-to-deposit ratio was higher at 78.4%. Our diversified deposit base supports balance sheet resilience and flexibility in supporting loan growth. Our funding base remains diversified with close to 80% from customer deposits. All liquidity and funding ratios remain well above regulatory requirements. Moving on to capital. Transitional CET1 was 15.7% and fully phased-in CET1 was 14.0%. The Q-on-Q decline in CET1 ratio reflected the payment of our full year '25 final and special dividends as well as growth in RWA, which offset profit accretion. Our target operating level of 14% for group CET1 capital adequacy ratio on a fully phased-in basis remains unchanged. Our Board declared an interim dividend of SGD 0.47, up SGD 0.06 or 15% year-on-year. This is in line with our target 50% ordinary dividend payout ratio. We remain committed to complete the remaining SGD 2.5 billion capital return plan by FY '26. With this, I end my presentation. Thank you very much for your attention. I will now hand the floor over to Teck Long. Teck Long, please.

Thank you, Chin Yee. A very good morning to all of you, and thank you for joining us this morning. As I listen to Chin Yee's presentation, I realize that our profit and growth is quite easy to remember. We made SGD 2.22 billion of profit this quarter Q2 and at a 22% growth rate. Overall, we have delivered a very strong set of financials with income and profit at record high. We saw broad-based growth across all business lines as our Next Frontier strategy continue to gain momentum and deliver results. Some key highlights. Year-to-date loan growth was strong at 7%. Under our whole wealth strategy, our wealth business continues to gain momentum, achieving 39% year-on-year increase in Wealth Management fee for first half '26. For trading income, we differentiate customer flow trading income and noncustomer flow trading income. For customer flow, we did very well with income increased 47% year-on-year, underpinned by both wealth and corporate segments. Trading income not related to customer flow also increased by more than SGD 200 million during the quarter. This is largely attributed to recovery in investment held by Great Eastern in line with the rebound of the equity markets last quarter. Asset quality remained resilient with stable NPL ratio. ROE improved to 13.7% despite NIM compression. We are declaring interim dividends of SGD 0.47, up SGD 0.06, in line with our 50% payout dividend policy. Next, looking ahead, a lot will depend on how the energy crisis triggered by the U.S.-Iran war pan out. We continue to see K-shaped economic growth across major economies, U.S., China, Indonesia and to some extent, Singapore. Our pipeline for loan remains robust, anchored on growth industries, but probably will not grow at the same rate as second quarter '26, simply because second quarter '26 was really outstanding in terms of loan growth. Equity markets continue to be volatile. We saw a slight moderation of customer investment activity in July given the cautious market sentiment. Notwithstanding this, we are pleased that our customer acquisition remains healthy, and we still see good flows. Long-term demand for wealth solutions continues to be strong. Management guidance. Given the strong first half loan growth, we are raising our full year loan growth guidance to the high single-digit, low double-digit range. Full year income is expected to grow year-on-year with a slight decline in net interest income. Cost-to-income ratio is guided at low 40% range. Credit costs remained benign at 18 basis points during first -- for first half '26. Full year is likely to be at the lower end of our earlier guidance of 20 to 25 basis points. Our capital position remains strong, and we will complete the remaining of our SGD 2.5 billion capital return plan by FY '26. All in all, we had a very busy second quarter. I thought I'll take a moment to do a very quick recap. Highlights in the second quarter, we announced acquisition of HSBC Indonesia's wealth business. We launched OCBC WoW Avatar Banking, which is the first AI native app in Southeast Asia. We minted GOLDX coin on the back of LGS Physical Gold Fund. We launched gen AI-powered skills training to our -- for our wealth advisers. And of course, we recently announced HELIOS, but that's in July. And my personal favorite is this. Okay. So I shall hand it back to Ching Ching.

So with that, let's move into our Q&A. All right.

Let's go to Nick.

Let me be the first to congratulate you on a very strong set of results. It's a good performance. In terms of loan growth, I just wonder if you could talk going forward. I mean, it's obviously a very good loan growth number, 5% Q-on-Q. You've raised, I mean, low double digit is quite an attention growing sort of number for the full year. So I wonder if you could talk about how you're thinking over the next 2 to 3 years. And in particular, the big sort of industrial changes taking place and lots of demand for financing. So I wonder if you could talk about that, where you expect the loan growth to come from? And then if you could put that in the context of the 14% CET1 ratio fully phased in, which is obviously sort of at your target range. So if you could maybe help us think about how you're balancing RWA growth, how are you thinking about CET1 target, what are the levers you can pull?

Okay. I'm going to do further crystal ball gazing since the question is about the next few years as opposed to the next 6 months. I want to bring us back to February. In February, when we launched our Next Frontier strategy, we were actually very aware of a very complex operating environment. I personally referred to it subsequently -- in subsequent speeches I make, as a VUCA environment, volatile, uncertain, complex, ambiguous and K-shaped economic growth. So this is the environment which we are operating in. So when we came out with the Next Frontier strategy, we are hugely aware of this. So then we decided on a couple of things. First, let's identify the growth industries and be really very focused. So if you look heavily at our Next Frontier strategy, we talk about 4 strategic shifts. The first 3: first, a right Asia shift, which is about rising Asia inbound investments into Asia rejigging supply chain; two, tech shift, which is about financing the tech supply chain, including data centers, equipment for the data equipment manufacturer, et cetera; and third, sustainable finance. And our North Star is trying to make a difference to the environment, financing industries like renewable energy, which makes a difference to the environment, supporting SMEs in their green transition. All this has come up very well for us. In terms of outlook, I think this trend will continue, and this will anchor our loan growth. And this is what we have been seeing in the past few years as well. So that is your first question. The second is relating to our loan growth. Loan growth in the second quarter is exceptional, partly because of some M&A transactions, which we are backing. We don't really expect that exceptional growth rate to continue in the third and fourth quarter. It doesn't mean that in fourth quarter, it's weak. It's just relative to the second quarter, we will be at a slower pace than the second quarter. Now we have been focusing on ROE. Our ROE is higher. Our profit accretion will be higher. So we will continue to focus on ROE. Our target operating CET1 CAR will be around 14%, give or take. So I hope that answers your question.

We have Chanya [ Alia ].

Chanyaporn Chanjaroen from Bloomberg. Congrats on the numbers and share price exceeding SGD 30. I have two questions. I mean it's -- with the stocks and many record numbers that you have, what's your thought on gravity rules? Do you -- gravity rules, what goes up may come down one day. Do you see that as a headwind going forward? And second question, any thought on area of growth that you want to see? You already did HSBC in Indonesia. Do you see more coming in the years to come?

Well, you're asking a very difficult question. Firstly, I think the stock price is what it is. We appreciate the confidence investors have with the OCBC team and our delivery in accordance with our strategy. We focus really on building our franchise and executing our strategy, and then we just let the share price be dictated by how investors view us. Whether it will come down or not, I think there are many experts here we can ask. On the second question on acquisition, I'm always looking at acquisition but we are very disciplined with acquisition. So I have mentioned before that we exercise a lot of discipline. Acquisition targets is not suitable for our strategy or something which doesn't really make a difference to our growth, we won't consider that. So we will look at inorganic growth, if that's the question carefully, but I am not averse to it. I'm happy to actually do an acquisition if the right target come along.

Let's go to Yong Hong.

This is Yong Hong from Citi. Just 3 questions for me. On your customer-related flows, how much was driven by wealth flows versus your corporate flows? Because on these flows, that is growing faster than your fees. So just wondering some color behind this and the sustainability of this. And secondly, on the Great Eastern driven noncustomers-related income or the trading income, should we now be expecting this line item to be more volatile depending on the equity market condition? And finally, on the wealth management income, is there a bigger shift towards Hong Kong customers? Or is Hong Kong-related AUM growing faster than other regions that is driving better monetization of your AUM through fees income? These are my 3 questions.

For the first question, I will trouble Ken to take the question.

Thank you for the question. So from the customer income, actually, we're actually seeing a very good diversification in terms of all across customer segments. Obviously, the growth in our wealth income is the highest, but we're also seeing very, very strong growth in terms of our corporate customer base as well as our institutional customer base.

Maybe any commentaries on how sustainable this can grow because it's the line item in your fees income, non-interest income that's growing the fastest.

Yes. We are actually quite confident in terms of this income being sustainable going forward. Reason being we have a very good product diversification and also in terms of regional and geographical diversification.

Maybe I can supplement. Generally, the nature of the business in the wealth income is -- it follows the momentum of the wealth business and may be dependent on market sentiment. For the corporate side of the customer flows for trading income, it's also an annuity-like income, but we may see some ups and downs in certain quarters depending on the size of the deal. So we do a lot of interest rate swaps, FX for transactions. The second question relates to the Great Eastern contribution, the noncustomer flow trading income. Greg, do you want to take this?

Yes. I think you were talking about volatility and whether we can predict volatility. Obviously, you saw the swing between the first quarter and obviously, the first half. This is -- this has been a particularly volatile year. The first quarter was impacted, obviously, by the events in the Middle East predominantly impacting markets. So the mark-to-market is going to continue, I think, to be volatile through the second half. You can already see that between what was June and July, and we'll have to see how the rest of the year plays out. Obviously, our investment strategy is one of diversification though. So we continue to diversify our investments to try and smooth that volatility. But I think you also need to look at the insurance results as well. And if you look at the underlying insurance results, they're solid, and we've got confidence that those are going to be sustained going forward.

Yes, I want to add that the nature of the insurance company is very different from the bank. So when we say it refer to noncustomer trading income in the bank is market-facing trading income. But for Great Eastern it is -- because they maintain a portfolio, so it depends on the investment performance of the portfolio, which you can actually have a sense based on the market, how the market perform in general. Okay. The third question, Wealth Management. Any volunteers?

Yes. Maybe I could just add. I think our Hong Kong business is doing very well. We continue to invest in our Hong Kong. We are also adding more RMs and we also see productivity in RM going up. And if you could see, I think we have already unveiled a new branch with official opening to be in end September. So I invite you all to go there if you're around. I think it's -- and our collaboration with [indiscernible] is proving to be a hit. We see acquisitions of new customers going up in that branch in particular. And I think we are looking to add more wealth branches in Hong Kong as well. So I think overall, we are very optimistic about our prospects in Hong Kong.

Yes. I think Hong Kong has a lot of legs to run. It's part of our twin hub strategy under the Next Frontier strategy.

Let's go to Jayden.

Just on Hong Kong and I guess, some of the regulatory changes that we're seeing out of China. Obviously, it's been a great story for you and one of the drivers of growth. But did these regulatory changes have any impact on the way you operate or your clients' demand? And will it have any effect on the trajectory of fees, which have been very, very positive? Just wanted to ask on this.

Since almost all of us have spoken except Jason, so I volunteer Jason then.

Sure. Thank you very much for the question. So it's still early days since the news has come out. We have a lot of controls and processes in place to comply with these rules. And we're currently in the process of contacting our clients. We haven't seen any significant asset flows since the news has come out, although we are right now in the process of contacting our clients. But what's quite interesting is that while some clients have, of course, expressed concerns and want more clarification on what these rules mean, we have quite a number of clients who have expressed, I won't say gratitude, but they're actually quite happy and they welcome the clarity that the Chinese authorities have shown going down this direction. So we've got a good balance of clients who have expressed that. So again, still early days, but we'll continue watching the space and see how this continues to affect our business.

Ultra from Reuters.

Just want to ask OCBC, if there's any -- overnight, there's this big Bloomberg story about iron ore trader, Radiant World. And I just want to ask about if OCBC has any exposure relationship with this company.

I first come across this name in the Bloomberg. So no, we don't have exposure to the company.

Let's go to Melissa.

Just the first question, you have done really well in every line that we have seen. ROEs as well has hit a nice high. So maybe can you talk a little bit about your aspirational ROEs from here and how we can see that move higher? And maybe secondly, in terms of your Great Eastern, that has actually pulled itself up very well as well. And you've mentioned the change in terms of product and also in margins. But maybe we can get a bit of color of what else are we expecting from here from Great Eastern? How well are you working together with the team here in Bank of Singapore? And maybe also if you can comment a little bit, I'm not sure about the tax rules that has come out on China, on insurance? And how do you think that may impact sentiment?

I'm not ready to reveal the ROE. In the Next Frontier strategy, which was launched 6 months ago, we said we are focused on that. And you can see our ROE is going up quite quickly. So we hope to maintain that. Now as to what is the aspirational ROE, I'm not quite ready to share because there are so many factors involved in that. On your next 2 questions, I'll pass it to the subject matter expert, Greg.

Yes. So I think the first part was, do we work well together? I think the answer is resounding yes. We have a whole of wealth strategy. Great Eastern plays an implicit part in that. So when we think about wealth, it is really whole of wealth, including insurance. So I think if you look at the bancassurance performance, particularly in Singapore, that has improved fairly dramatically over the last sort of 12 months. And that is basically down to the collaboration between the Great Eastern team and the OCBC team, and changes that we've made to the operating model. And obviously, we will continue to optimize that operating model. There's a lot more value upside that we believe within bancassurance. Beyond bancassurance within Great Eastern, what I'm hoping you're seeing is that we are delivering new products to market. We're launching new propositions. We launched high net worth in March. So this was Great Eastern Private. And we've seen very good traction from -- following that launch, and we've got more propositions coming. And we are now investing in the technology that we're using within the business as well, and that's technology that we will deploy here in Singapore, but also deploy other -- across our other businesses as well, particularly Malaysia. So yes, there's a lot happening within GE. And so we're confident that the momentum in the business can be maintained. And yes, we can update you more as new things come to market.

Greg, there's a third question on the tax relating to insurance company on the China front.

Which one was that? Tax, did you say?

Yes, tax.

Is this the CRS point? So I don't think there's anything new there. I think this is adoption of CRS by China. So I don't think there's any new news in that regard, and it doesn't affect us.

Under the whole wealth strategy, we are moving things very quickly. So the Hewton Fair Suite, which is a high net worth value proposition by Great Eastern, is in close collaboration with Bank of Singapore who understand high net worth very well. On the OCBC banca partnership with Great Eastern, the two teams has collaborated very closely to redesign the end-to-end process to bring more value to the customers and to speed up the way we onboard customers. So we are redesigning that end-to-end at the moment.

Just one thing I should have probably added actually that we just recently announced within GE Financial Advisers that we are now offering not just insurance solutions, but also more sophisticated wealth solutions, so equity structured products, and those are effectively executed through Bank of Singapore in an embedded asset manager arrangement that we have with them. So we're looking at making sure that, again, Great Eastern can obviously bring insurance solutions, but also wealth solutions beyond that, leveraging the other parts of the group.

Just to follow up on Great Eastern and also Hong Kong side. Since OCBC Wealth is also expanding in Hong Kong personally, Greg, are you going to introduce any insurance products in Hong Kong? What's your thought?

It's an interesting market, and we're taking a good look at the opportunity in that market.

You will, but you are not doing that.

Sorry?

Are you considering that?

We might be considering it, yes.

You might...

Can we just go back to Nick, please?